June 27, 2003	Friday	Rabi-us-Sani 26,1424

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KARACHI, June 26: The State Bank of Pakistan has warned that a majority of the population will not derive economic benefits unless institutions are revamped and restructured, and good policies will not translate into better living standards unless the delivery of services is ensured.

In its third quarterly report released here on Thursday, the central bank also warned that the institutions responsible for carrying out major projects should be monitored at the highest policy level to ensure that the benefits are realized.

The SBP report also clears confusion about the government claim of a 5.1-per cent GDP growth in fiscal 2002-03 that has been challenged by independent economists. The SBP report says that the GDP growth rate of 5.1 per cent falls to 4.6 per cent if the previous year’s adjustments that altered the base for this fiscal year are netted out.

“Macroeconomic policies and management are easy to improve; given the political will, microeconomic incentives can also be sharpened for private sector; but the majority of the population will not derive the economic benefits unless the existing institutions are revamped and restructured,” warns the report.

“...It is imperative that the institutions responsible for carrying out major projects are monitored regularly at the highest policy level to ensure that the impediments are removed, the results are achieved and the benefits are realized,” it says. “This has become all the more important due to arrival of a new player on the scene i.e. the local governments whose impact on the poverty related expenditures is likely to be much sharper than other tiers of the government,” it adds.

The report recommends that the second generation of reforms should accordingly focus on institutions as good policies, good governance and good luck, will not translate into better living standards for the population at large— “unless the delivery of services, easy access to justice, police and executives, uniform application of the rule of law, strengthening of local governments and reform of key economic organizations are ensured in the next few years.”

“This is a difficult challenge that requires strong leadership, which can oversee the design, monitor the implementation, remove the bottlenecks and ensure the results.”

The report emphasizes that the “inertia and apathy” around institutional reforms in the past “have to give way to a more pro-active outcome-oriented approach.”

Commenting on the budget for 2003-04 the report says it sets the course for transition from macroeconomic stabilization to higher growth trajectory. While incentives have been provided and irritants removed to stimulate production and investment in the private sector the main emphasis is on higher development outlays by the public sector.

The PSDP has been allocated 30 per cent higher resources and public sector investment is expected to increase from 4.5 per cent to 5.5 per cent of GDP. “But the continuing worry is the slow implementation and lack of utilization of these resources,” says the report. “It appears that there will be a shortfall of 1 percentage point of GDP in the current fiscal year in public sector investment arising mainly due to non--utilization of PSDP allocations,” it adds.

OVERVIEW: The report that covers July/March 2002/03 period of this fiscal year says the performance of the economy during this period “is even more creditable considering that it was achieved despite a negative shock of Q3-FY03 in the form of the conflict in Iraq that pushed up the country’s oil bill and increased energy and transportation costs.”

It says that provisional estimates based on July-March figures show that the FY03 GDP growth is comfortably ahead of the target and that this improvement is remarkably broad-based “with strong participation from major segments of the economy.”

The recovery by agriculture has been complemented by a strong showing by the manufacturing sector which in turn supported a much-improved performance by the services sector.